Friday, July 29, 2011

Shale Oil & Gas Bonanza: The Energy Wealth Keeps on Coming

A few years ago every geologist involved in Appalachian Basin oil and gas knew about the Devonian black shale called the Marcellus. Its black color made it easy to spot in the field and its slightly radioactive signature made it a very easy pick on a geophysical well log.

However, very few of these geologists were excited about the Marcellus Shale as a major source of natural gas. Wells drilled through it produced some gas but rarely in enormous quantity. Few if any in the natural gas industry suspected that the Marcellus might soon be a major contributor to the natural gas supply of the United States - large enough to be spoken of as a "super giant" gas field. _Marcellus Shale Geology

But now, all that has changed. The Devonian black shale that could never get any respect, is now becoming a big star.

You can find the Devonian period in the chart above. Marcellus shale formed in the Devonian, but other shales formed in other geologic periods, at other sedimentary depths. It is important to keep the Earth's age in mind when thinking about possible hydrocarbon deposits.

Marcellus shale oil & gas have been lying in wait, waiting for humans smart enough and hungry enough to come down and get them. Some humans are willing -- and they are beginning to reap the rewards. Other humans are frightened of phantoms and their own shadows. They are drowning in debt and avoidable human misery.

The Marcellus shale formation—65 million acres running through Ohio, West Virginia, western Pennsylvania and southern New York—offers one of the biggest natural gas opportunities. Former Pennsylvania Governor Ed Rendell, a Democrat, recognized that potential and set up a regulatory framework to encourage and monitor natural gas drilling, a strategy continued by Republican Tom Corbett.

More than 2,000 wells have been drilled in the Keystone State since 2008, and gas production surged to 81 billion cubic feet in 2009 from five billion in 2007. A new Manhattan Institute report by University of Wyoming professor Timothy Considine estimates that a typical Marcellus well generates some $2.8 million in direct economic benefits from natural gas company purchases; $1.2 million in indirect benefits from companies engaged along the supply chain; another $1.5 million from workers spending their wages, or landowners spending their royalty payments; plus $2 million in federal, state and local taxes. Oh, and 62 jobs.

Statistics from Pennsylvania bear this out. The state Department of Labor and Industry reports that Marcellus drilling has created 72,000 jobs between the fourth quarter of 2009 and the first quarter of 2011. The average wage for jobs in core Marcellus shale industries is about $73,000, or some $27,000 more than the average for all industries.

The Pennsylvania Department of Revenue says drillers have paid more than $1 billion in state taxes since 2006—and the numbers are swelling. In 2011's first quarter, 857 oil and gas companies and affiliates paid $238 million in capital stock and foreign franchise taxes, corporate income taxes, sales taxes and employer withholding. This exceeds by some $20 million the total payments in 2010.

The revenue department also identified some $214 million in personal income taxes paid since 2006 that can be attributed to Marcellus shale lease payments to individuals, royalty income and asset sales. And all of this with no evidence of significant environmental harm.

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Then there's New York. The state holds as much as 20% of the estimated Marcellus shale reserves, but green activists have raised fears about the drilling technique known as hydraulic fracturing and convinced politicians to enact what is effectively a moratorium.

The Manhattan Institute study shows that a quick end to the moratorium would generate more than $11.4 billion in economic output from 2011 to 2020, 15,000 to 18,000 new jobs, and $1.4 billion in new state and local tax revenue. These are conservative estimates based on a limited area of drilling. If drilling were allowed in the New York City watershed—which Governor Andrew Cuomo is so far rejecting—as well as in the state's Utica shale formation, the economic gains would be five times larger. _GWPF: Pennsylvania vs New York

The State of New York is practising energy starvation on its own citizens and industry. The people will necessarily suffer as a result. The federal government of the United States is also practising energy starvation on its own citizens and industry, but on a much larger scale. More on that in another posting.

Another rich deposit of shale is the Utica formation, found at deeper levels than the Marcellus shale. The Utica is found in the Ordovician layers (see chart above).

Utica Shale is a geological formation found several thousand feet below sea level, much deeper than the commonly discussed Marcellus Shale, a natural gas-rich formation that is now being explored in eastern Ohio and Pennsylvania.

On Thursday, Chesapeake Energy, based in Oklahoma City, released its quarterly earnings report, including in it references to this latest mineral find. Chesapeake, which holds 18 of the 24 permits to drill into Utica Shale in the state, said results of recent drilling indicate oil in eastern Ohio.

''Chesapeake is announcing the discovery of a major new liquids-rich play in the Utica Shale,'' the report said, noting that the finding was based on two years of ''proprietary geoscientific, petrophysical and engineering research.''

Chesapeake's report indicated that the discovery could be worth a $15 billion or $20 billion increase in company value.

"The company believes the Utica Shale will be characterized by a western oil phase, central wet gas phase and an eastern dry gas phase," the report said. _TribToday

New technologies for exploiting rich shale deposits have overturned conventional wisdom on North American oil & gas reserves and production capacity. Expect the same to happen around the world.